Essentially, the premise currently (using the Wowio example) is a few pages of ads before you can read the book, or perhaps a side-along ad, much like what this (and most other) blogs have. Advertisers are saying, of course, they would never ever put pop-up ads in a book. I don't believe them for a second.
Happily, when the WSJ asked a literary agent and Random House what they thought, they both sounded displeased at the idea, and pointed out that ads were put into mass market paperbacks (think romance novel-sized) in the 1950's and 60's, and that didn't really work out. However, most mass market paperbacks still have ads in them - for example, if you get one of Jim Butcher's books (author of the Dresden Files series and the Codex Alera series), you get an ad in the back of the book for the other series or the next book in that series.
Random House also says that the authors must have a say in this - without author approval, they can't do it. Hopefully this means that will never happen. I think any serious author - that is to say, any author who wants people to read their work and enjoy it, not simply someone who does this to make money - wouldn't want ads in their books. Ads, especially ads in the middle of a book or on the side, are simply distracting.
I'd be ok with ads at the beginning and end of e-books, I guess. Kind of like what Hulu used to do for their online TV shows - you get an ad for thirty seconds, and then you're off to wherever your bookmark is. (Now they just basically run commercials like a normal TV show would.) But it's just a no-go on interruptions in the middle of reading. Between chapters? Gross. As someone who can scan read, I would find that so horrible to have to look at an ad for a minute before I could move on. It's not practical for readers. Or remotely enjoyable.